Continuity mistake: The episode begins the morning after Buffy and Spike first have sex. That night, Willow and Amy go out again to find Rack's place, and this cuts directly to Willow waking up the next morning. But later in the episode, Spike makes repeated references to what happened between him and Buffy "last night", when in fact it was two nights ago.
Continuity mistake: Just before Buffy storms out on Spike, she puts on her denim jacket. When viewed from in front we can see the jacket is only half over her shoulders and her hair is loose. The shot cuts to view her from behind, and the jacket is now completely on and her hair is tucked under the collar.
Chosen answer: Angel is saying that he is still jealous and Buffy recognizes that this is his way of saying he wishes that they could be together. That is why they both smile.